State Budget Outlook for Fiscal 2014 – County Funding Issues In the Balance

Now that fiscal 2013 is underway and the State is almost finished closing out fiscal 2012, focus lands on fiscal 2014. Soon the state’s Department of Budget and Management (DBM) will be reviewing State agency budget requests to begin formulating the Governor’s fiscal 2014 budget. This will include reviewing budget documents submitted by each agency as well as a meeting with each agency’s secretary to discuss each request.

Although counties do not formally submit requests to DBM, state aid to local governments and other programs affecting counties are administered through state agencies and will be discussed and decided during this process. This article seeks to highlight some of the changes that could arise in the Governor’s fiscal 2014 budget with respect to county governments.

Summary of Reductions and Actions

Cumulatively, local governments have lost approximately $1.8 billion in State aid since fiscal 2010, as various programs have been cut and costs have been shifted to counties. The deepest reductions in actual aid programs have occurred to local roads and bridges, law enforcement, health departments and county jails. Additional cuts and fiscal issues, initially made as temporary, have been renewed with each year’s budget package. On top of these reductions, the State began a shift of $255 million in teacher pension costs and now invoices counties for costs of the state-managed assessment offices.

While state fiscal constraints would make it difficult we do not expect to see a roll back of all of these reductions and cost shifts, based on specific actions over the past two years, state law currently provides some relief in specific areas. These include the following:

Property Assessment Office Costs Reduced – Shifted to counties in fiscal 2012, counties were invoiced 90% of costs for property valuation, but this is slated to drop to 50% in fiscal 2014 – county costs should drop from approximately $35 million to $20 million

Of course, as reported previously on Conduit Street, these funding increases are all discretionary. Given the State’s fiscal constraints and the need to close the state’s remaining structural deficit, there is no guarantee that these items will be restored. This same premise applies to other items provided as an offset to teacher pensions, such as the teacher retirement supplemental grant program.

Although the State continues to face long-term funding challenges to meet its spending commitments to education, Medicaid, and general government, the State’s fiscal situation generally remains stronger than that of its counties. State revenues are improving slightly, while counties’ heavy reliance on property taxes leaves them lagging and still experiencing declines in the tax base. As the State’s fiscal picture improves, counties hope that forthcoming state budgets can restore this funding and ease the ongoing financial burden of prior costs shifts.